When a 10% discount is not equal to 10%
The Sunday Nation
Nairobi,
05 January 2014
During the just-ended
holiday season, many shops offered different kinds of discounts to
customers in a bid to win their business. The easiest and most
straightforward offer is one where a certain percentage or cash value
was knocked off the listed price.
For example the shop
may offer 10% discount off the listed price. Thus if an item normally
goes for Sh100, you’d expect to pay Sh90. But Kenyans are a doubtful and
untrusting lot – perhaps this is an indicator that so many of us are
quite untrustworthy – so when we come across such an offer, we assume
that the shopkeeper simply added 10% to the normal price and then
pretended to be giving a 10% discount. The net result being that the
price goes back to its original level. But would it?
If it was Sh90 to
start with, and the shop added 10% (Sh9), it would go up to Sh99.
Subtracting 10% (Sh9.90) from this gives a discounted price of Sh89.10.
This is lower than the normal Sh90, albeit by a small margin – just 1%!
Instead of offering a
10% discount on the price, some products offer 10% extra quantity in the
package. Thus if a packet contains 10 items, you now get 11 pieces for
the same price. The question that arises immediately is which of these
two offers is better: 10% more product, or 10% less price?
Let’s compare the two
using the Sh100-item: with 10% discount, 10 pieces would cost Sh900 (=
1,000 – 100). But with 10% extra, the you buy 11 items at Sh1,000. Thus
the price per piece is Sh1,000 divided by 11; that is, Sh90.90.
This is slightly
higher than the Sh90 that one pays when 10% discount is offered. Working
backwards, it turns out that the you pay Sh1,000 instead of Sh1,100.
That is a Sh100-discount off the price of Sh1,100. In other words, it is
a 9.09% discount (100 divided by 1,100); not 10%!
Other shops also come
up with a bizarre quantity discount schemes: you get 10% off the second
item of same or less value. That is, if you buy a product going for,
say, Sh100, and a different one priced at Sh50, then the discount is
calculated on the Sh50-one.
Thus you pay Sh100 +
Sh45 = Sh145 instead of Sh150. the net percentage discount is therefore,
5 divided by 150; that is 3.33%! This is a far-cry from the prominently
advertised 10%.
In fact, it turns out
that the highest discount you can get is when you buy two items worth
Sh100. In that case, you will save Sh10 from the total bill of Sh200. In
other words, the percentage saving is 10 divided by 200; that is, 5%.
The big question then
is why a business would want to use such trickery. Why not simply come
out clean and advertise “up to 5%
discount when you buy two items”? That discussion is outside the
theme of this column. Perhaps my fellow columnist Sunny Bindra will find
space for it some time in the near future.
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